Republicans believe that a bad economy works for them at election time. The thinking is that the public will turn on Democrats for not making things better. So they do what they can to make the economy bad. But maybe they went too far this time. This hostage-taking episode has done real, serious, lasting damage to the economy on top of the ongoing damage Republicans have been doing. Will the public still blame Democrats, or will they finally see what is going on here?
The Damage Last Time
Look what happened the last time (2011) Republicans threatened to force the country to default on its debts.
The 2011 hostage-taking hit jobs. In Debt-Ceiling Deja Vu Could Sink Economy Bloomberg reported that, “Growth in nonfarm payrolls decelerated to an average 88,000 a month during the three months of the debt-ceiling impasse, compared with an average of 176,000 in the first five months of 2011.” Consumer confidence plunged to a 31-year low. The Conference Board’s consumer confidence index fell from 59.2 to 44.5.
In November, 2012, the Bipartisan Policy Center released a “Debt Limit Analysis” estimating the costs of the 2011 hostage-taking:
The Government Accountability Office (GAO) issued a report detailing additional costs to taxpayers as a result of the 2011 debt limit increase
- A substantial cost to taxpayers stemmed from elevated interest rates on U.S. securities issued in 2011 prior to when the debt limit was increased in August
- GAO conducted an economic analysis to estimate the resulting change in interest rates
- For Fiscal Year 2011, GAO estimated additional interest costs to taxpayers of $1.3 billion
The cost of the event to the federal government, however, continues to accrue because many of the bonds issued during that period remain outstanding
- BPC extended GAO’s methodology to analyze the long-term cost to taxpayers stemming from the elevated interest rates
- Estimate of the ten-year cost to taxpayers of the 2011 debt limit standoff = $18.9 billion
- To put this in perspective, the Congressional Budget Office (CBO) estimates that the “Doc Fix” to prevent the scheduled 27% cut to Medicare physician payments for 2012 cost $18 billion over ten years
That is serious damage. And, of course, the 2011 fight resulted in a downgrading of the US credit rating.
(See also: Think Progress, CHARTS: How The Debt Ceiling Debacle Hurt The Economy)
The Damage This Time
In this hostage fight the immediate damage is much worse than 2011. Consumer confidence, for example, has plunged even more dramatically than during the last debt-ceiling hostage-taking. But these measurements were taken only a week into the fight.
Standard & Poor’s ratings agency has done some early calculations of the damage and says, “the shutdown has shaved at least 0.6% off of annualized fourth-quarter 2013 GDP growth, or taken $24 billion out of the economy.” Note the words “at least.” This is an early estimate and does not count direct costs to government and costs to government contractors.
The NY Times today summarizes some of the damage from this hostage-taking, in Gridlock Has Cost U.S. Billions, and the Meter Is Still Running,
Containers of goods idling at ports. Reduced sales at sandwich shops in downtown Washington. Canceled vacations to national parks and to destinations abroad. Reduced corporate earnings forecasts. Higher interest payments on short-term debt.
Even with the shutdown of the United States government and the threat of a default coming to an end, the cost of Congress’s gridlock has already run well into the billions, economists estimate. And the total will continue to grow even after the shutdown ends, partly because of uncertainty about whether lawmakers might reach another deadlock early next year.
One example of the damage from this fight – just one,
Residential real estate, which has been one of the brightest points of the recovery, suffered. An index of sentiment among home builders fell in October from a month earlier, according to data released on Wednesday from the National Association of Home Builders. The decline was greater than analysts had expected. One cause for the decline is that the approval process for government-backed mortgages has slowed with the shutdown.
The Damage From Cutting Instead Of Investing
Republicans have forced the country into an austerity mode, instead of an invest and job-creation mode. Everything is being cut, so that the billionaires and their giant corporations can have lower taxes. Aside from the sequester cuts there have been trillions in other cuts.
Paul Krugman writes about this ongoing damage today in a blog post, What A Drag, estimating that just two of the cuts we have experienced (not counting other cuts and the sequester) have cut “about $200 billion of fiscal contraction at an annual rate, or 1.25 percent of GDP, probably with a significant multiplier effect.”
That’s just those two pieces of Republican damage to our economy. Looking at the overall effect of austerity on our economy,
“Add this to the effects of sharp cuts in discretionary spending and the effects of economic uncertainty, however measured, and I don’t think it’s unreasonable to suggest that extortion tactics may have shaved as much as 4 percent off GDP and added 2 points to the unemployment rate.”
Damage: 4% off GDP and 2% added to unemployment.
The Sequester Damage
Then there is the ongoing economic damage done by the sequester cuts. Republicans hail the sequester’s cuts as a great victory, an accomplishment in their ongoing fight to destroy government, but in reality the cuts are costing jobs and hitting the economy.
These job-loss and slow-growth numbers do not include the ripple effect into the larger economy, nor the longer-term cost to our economy from the cuts to scientific research, education, child nutrition and other cuts.
And these cuts don’t even save the government money! One example of the costs of the sequester cuts comes from the effect of cuts in the Meals On Wheels program. Because of the cuts, many elderly end up in hospitals with malnutrition-related problems, and/or are forced into nursing homes because they can no longer live at home. Aside from the cruelty and resulting human suffering (not considered a “cost”) this costs money from government services including Medicare and Medicaid.
The Ongoing Damage From Obstruction
Republicans have been obstructing … everything. The ongoing economic damage has been just incredible but because it gradually worsens things the public is not as aware as they should be. There are two obstructions taking place. In the Senate Republicans have been filibustering every bill, every nominee … everything. In the House the “Hastert Rule” prevents the majority of the Congress from being able to vote. By preventing bills from coming up for a vote if they might be passed by a majority that includes Democrats and some “RINO” Republicans, anything that could help the country and economy is blocked.
So along with the series of manufactured crises there is a constant, ongoing drag because people have come to believe government will generally continue to hamper rather than boost economic progress. They see no jobs programs coning down the pike, see the infrastructure crumbling, and see the corporate/billionaire-favoring trade deals killing jobs.
Krugman again, from his blog post, What A Drag,
The now widely-cited Macroeconomic Advisers report estimated the cost of crisis-driven fiscal policy at 1 percentage point off the growth rate for three years, or roughly 3 percent now. More than half of this estimated cost comes from the “fiscal drag” of falling discretionary spending, with the rest coming from a (shaky) estimate of the impacts of fiscal uncertainty on borrowing costs.
The Damage Next Time
So what will the damage be next time, and how can we fight it? Yesterday’s “deal” only puts off the fight for a few months. With more of this on the horizon companies will be hesitant to hire or invest. Consumers will remain wary and distrustful.
Republicans still have one power: the power to destroy. And they will use that power until we take it away from them.